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Ethical investing: Govt may boost SRI funds

The Green Party's demands to have part of the Government's superfund invested ethically are likely to be a significant boon to socially responsible investing.

Thursday, April 26th 2001, 1:40PM

by Philip Macalister

The Green Party's demands to have part of the Government's superfund invested ethically are likely to be a significant boon to socially responsible investing.

A report done by Australian based fund manager Rothschild Asset Management says that ethical investing is growing in popularity across the Tasman, but it is unlikely to be as popular as it is in the United States.

"We are unlikely to see the same extensive embracement of the concept as we have seen in North America."

It says that investors are becoming more comfortable with the concept that "ethically investing is profitable."

One of the triggers which is likely to see ethical funds become more mainstream is big name managers rolling out product.

"The catalyst is likely to come from key, brand name fund managers demonstrating that such funds are not fringe dwellers in the market place, but robust investment products that can match the performance and wealth creation ability of the traditional products."

In New Zealand three of the big managers, Tower, AMP and Guardian Trust have rolled out ethical funds and more are likely to follow.

This is where the Government's super fund may provide a significant boost. If part of the fund is invested ethically, as demanded by the Greens, the profile and performance of these types of funds will become mainstream.

The two reasons being that the fund's performance will undoubtedly be subject to intense scrutiny, and it will be big in dollar terms.

Colonial First State's parent company Commonwealth Group have shown interest in this area by making submissions to the Finance and Expenditure Select Committee about how certain types of socially responsible investment practices might be used by the fund.

Another player expressing interest in this area is Challenger. It is also looking at rolling out an ethical fund in New Zealand.

Rothschild's says that in the retail sector the demand for ethical funds is coming from the investor as opposed to the adviser.

It says that more than three quarters of the people in a recent Resnik-KPMG survey wanted to know what there superannuation money is invested in, and an even higher majority said they would be concerned if their super was invested in companies with ethical issues, such as the use of child labour.

The research also shows that about half of the people surveyed were willing to allocate 22% of their investments to a socially responsible fund and virtually all said they would be happy to allocate 12% of their portfolio.

To get an idea of how the gatekeepers, that is advisers felt about ethical funds, Rothschild surveyed 2000 planners earlier this year.

In the retail sector its research showed there wasn't a strong preference to ethical Australian shares over international shares. Rather 89% of the people said they would want to choose both an Australian and/or an international share fund.

The research says that both the retail and institutional investors prefer a combination of positive and negative screening. (For details of the difference between the two click here).

In total 43% of respondents went for a combination approach, while 23% each picked positive and negative screens.

The survey also asked people what were the most important factors to screen for.

Rothschild says the respondents were clear on what areas they felt were important to screen.

Top of the list for retail investors was environment, followed by human rights, tobacco, gambling then alcohol and labour relations. Institutional investors ranked segments in a similar way except tobacco was much lower down the list.

To download an investment statement for Tower's ethical funds click on any of the following links:

- FreedomPlan Global Responsibility Fund (super fund)
- Global Responsibility Fund GIF

You can read Philip's blog here: http://www.goodreturns.co.nz/blog/

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